The U.S. Consumer Price Index ( CPI ) for August will be released at 8:30 a.m. Eastern Time on Thursday. As the next Federal Reserve interest rate meeting approaches, the market is viewing this data as an important basis for short-term pricing. Previously released figures showed that the U.S. PPI in August rose 5.4% year-on-year, exceeding market expectations, which drove up U.S. Treasury yields and also put pressure on stocks, gold, and crypto assets.

Market expectations are focused on 3.4%.

Currently, the market generally expects that in August, the year-on-year growth for CPI will be 3.4%, remaining unchanged from the previous value; the year-on-year growth for the core indicator CPI is likely to decline from 2.5% to 2.4%. On a month-on-month basis, the overall CPI is expected to grow by 0.38%, which is higher than the 0.07% growth in July; the month-on-month growth for the core indicator CPI is expected to be 0.22%, consistent with July's figure.

Wall Street currently has a relatively consistent view. Most of the 17 forecasts for the core CPI year-on-year change fall between 0.16% and 0.24%, indicating that there is not much disagreement in the market regarding core inflation.

Energy prices may drive up overall inflation

The market believes that the main source of upward inflationary pressure in August comes from energy. Energy prices are expected to rebound by about 2.5% month-on-month, compared to a decrease of 1.5% in July. Among them, gasoline prices are expected to rise by more than 4% after seasonal adjustment.

Food prices are expected to rise by about 0.2% month-on-month. However, some observers believe that the actual figure could be closer to 0.3%.

The internal structure of core inflation is even more differentiated. Airfare prices are expected to rise by about 3% month-on-month, and accommodation prices may also rebound after being weak for the previous two months. At the same time, inflation in healthcare services may slow down, clothing prices may fall, and the increase in used car prices is also expected to weaken, while housing inflation continues to show signs of cooling down.

The prices of technology products have also drawn attention. In July, the prices of IT products increased by 1.4% month-on-month, partly due to the previously announced price hikes for computers being passed on to the end-users. The market expects that this pressure may ease in August.

Core CPI will influence expectations of interest rate hikes on both sides

Compared to the overall CPI, the market is more concerned about the actual results of the core CPI, as this will have a more direct impact on the judgment of the Federal Reserve's decisions next week.

• If the core CPI only rises by 0.1% on a month-on-month basis, it will strengthen the judgment that inflation will continue to cool down, supporting the Federal Reserve's decision to remain inactive.
• If the core CPI cycle ratio is 0.2%, the market may continue to assess policy paths based on housing, services, and subsequent core PCE data.
• If the core CPI rises 0.3% on a month-on-month basis, it will be considered significantly strong and may drive up market bets for a 25-basis-point interest rate hike.

The report mentions that market expectations for a Fed interest rate hike have clearly risen. Futures on the federal funds rate indicate that the tightening expected for next week's meeting are around 15.5 basis points, with a cumulative increase of about 23 basis points by October and about 37 basis points by the end of the year.

Equity, bond, and gold markets may fluctuate in sync with the crypto market.

This CPI data may determine the direction of stocks, U.S. Treasury yields, gold, and crypto assets in the short term. If the overall CPI is higher than 3.4%, market pressure may increase further; if it is lower than 3.4%, risk assets may respond more positively; if it is in line with expectations, market performance may be mixed.

However, it may still be the core CPI that truly determines the direction of trading. If the core reading is strong, market expectations for interest rate hikes may continue to rise; if the core reading is weak, the likelihood of the Federal Reserve keeping interest rates unchanged will correspondingly increase.

Before the release of the Federal Reserve's interest rate decision, these inflation figures are likely to set the tone for interest rate expectations and the trend of risky assets.